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Why your brand loyalty is failing

Luca S. Paderni
Why your brand loyalty is failing Luca S. Paderni

Brand loyalty programs have been in use since 1929, when Betty Crocker launched the first ever purchase-based loyalty scheme, rewarding customers who bought the brand's flour with a coupon for Oneida cutlery. This incentive was popular with consumers, and marketing executives latched onto the concept. Now, more than 80 years later, the principles behind most loyalty programs remain the same -- reward buyers with discounts or special offers on exclusive products and services.

At Forrester, we recently surveyed more than 50 senior marketers to discover how loyalty programs fit into their marketing mix. We found that loyalty marketing often remains a means to an end, rather than a strategy. Marketers are primarily focused on customer acquisition (65 percent of the respondents), brand awareness (40 percent), and marketing ROI (39 percent), with customer loyalty ranking lower on their priority list. Marketers are also focusing too much on the financials behind points and rewards. While defining the mechanics is an important step, it can also results in tunnel vision, as marketers create financially driven schemes that ignore customer perspective of value, neglecting to consider overall brand perception.

Since the format has been around for decades, you would expect marketers to have fully mastered loyalty marketing initiatives; however, this is simply not the case. Almost half admit their loyalty programs result in erratic or immeasurable results, with most programs becoming merely short-term retention tactics. So why are loyalty programs not delivering the goods? When probed, these senior marketers say lack of differentiation and promotional clutter are the main culprits. For more than half of respondents, loyalty marketing initiatives are not aligned with the brand they are promoting.

As today's empowered consumers are increasingly demanding more personal relationships with brands, the time is now for senior marketers to elevate their view of loyalty marketing from a retention tactic to a key component of their brand strategies. If marketing organizations aspire to stay relevant and deliver consistently compelling brand experiences, they must develop a well-designed and holistic loyalty marketing initiative in order to optimize communication and promotion at all touch points.

However, brand loyalty cannot be created overnight. It is the result of a series of compelling brand experiences that, over time, lead to sustainable differentiation and customer preference. In order to achieve loyalty in today's connected world, senior marketers must develop a brand loyalty strategy. This strategy should aim to engage with customers to develop a mutual exchange of information, enabling the brand to develop actionable insights for more targeted communication, promotions, products, and service offerings that deliver higher customer value, brand preference, and ultimately brand loyalty.

The key components of this strategy start and end with the brand experience, encompassing customer engagement, interaction data, and actionable insights, allowing marketers to continually improve, refine, and customize compelling brand experiences. This approach will give marketing leaders the data and insight necessary to create a more relevant and compelling brand experience. Specifically, marketing leaders will be able to do the following.

Define service and product features that adjust to evolving customer behavior
Loyalty programs provide an important source of data, and by turning this data into actionable insights, CMOs can improve and redefine the brand's core value proposition and deliver new brand experiences that better match customer needs. Tesco in the U.K. is a pioneer in using its loyalty card data to redefine the product assortment on the shelves, redesign the store layout, and even decide to launch new store formats like its Tesco Metro mini mart, targeting its customers during their workday in large urban centers.

Deliver higher customer value across categories and channels
A strategic view of loyalty marketing will help organizations look beyond the immediate contribution that promotion and offers can generate and calculate the value of the acquired customer over time and across channels. A national electronics retailer has developed metrics that track how much a new TV customer is buying from other departments, rewarding the TV category manager for acquiring solid cross-department buyers.

Improve efficiency in communication and promotion
A comprehensive loyalty brand strategy enables marketers to execute highly personalized marketing programs that generate more frequent brand engagement, which in turn provides rich actionable data that helps marketers continuously refine targeted messages. Kroger has mastered this approach by continuously mining the data from its My Kroger Plus loyalty card to define highly customized offers and coupons for each of its customers.

Foster higher engagement and advocacy
The transactional and interaction data harnessed from a loyalty marketing initiative will help marketers spot brand advocates, to further engage with them, and help in spreading their positive experiences. Tasti D-Lite's loyalty program simultaneously rewards customers for repeat purchase and promotes the brand through earned media by syncing customers' Foursquare and Twitter accounts with its TreatCards.

In order to be successful, brand loyalty strategies must be in sync with brand identity, attributes, and associations. This means that when defining a strategy, senior marketers must stay make sure that they account for several factors. For example, marketers must stay in tune with the brand. By doing so, the brand loyalty strategy will deliver a compelling and credible narrative for both customers and employees in terms of brand equity, values, personality, and tone of voice. Best Buy in the U.K. is testing a loyalty initiative that, instead of focusing on discounts, is centered on Best Buy's core values: better service and better experience. The program gives access to premium services like exclusive access to events and product previews. Customers like the approach -- Best Buy in the U.K. reported increases in shopping frequency and average basket size.

Additionally, it will be essential to deliver compelling value across the different stages of the customer life cycle -- loyalty marketing initiatives reap the full benefits for both brands and customers when they have a clear strategy for how to engage with customers along the different stages of the life cycle. A good example is the brand loyalty strategy launched by O2, the U.K. mobile operator. For its pay-as-you-go customers, it previously had no data beyond usage. The strategy went through four distinct phases over a three-year horizon:

  • Gathered data by allowing access to play an online game when additional contact information was provided

  • Continued to request additional data each and every time the game was played, generating further insights and communicating more relevant offers to increase account refill levels

  • Over time, delivered highly tailored offers that matched each customer's needs

  • Allowed the customer to start to choose how she spent her accrued reward balance and created an even richer representation of the customer for targeted future initiatives.

Finally, before creating a brand loyalty strategy, marketing leaders must ensure that the entire organization understands the benefits. Operations, sales, finance, and customer service must all buy into the value of the strategy as well as agree on the level of support and involvement they must provide to make the program a success. CMOs should elevate loyalty programs to the board level to ensure orchestration, giving the strategy time to develop over years rather than quarters. A loyalty strategy will pay its dividends over years, once all the teams involved learn how to use customer data effectively.

As new loyalty strategies evolve, it will be important for marketers to remember that this isn't a simple initiative. They must expect consumers to continually raise the bar of their expectations from smart touches. Smart marketers will be prepared to deliver instant gratification rewards, engage with customers who want to define their own rewards, and ensure that brands surprise consumers with personal extras to show a human side to targeted offers.

Luca S. Paderni is vice president and principal analyst at Forrester Research.

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